- February 6th, 2012
Crude Oil Decreases as Greece Wrestles With Agreement to Avert Default
Oil declined in New York on concern that Greece will fail to take sufficient steps to avert a default, threatening Europe’s economy and fuel consumption.
Futures dropped as much as 1.5 percent before a deadline for Greece to accept terms demanded by international lenders on a bailout package. Brent oil in London traded at the biggest premium to the American benchmark grade in 12 weeks as record- low temperatures in Europe bolstered fuel demand.
“There’s disappointment in the market because there’s been no resolution of the Greek crisis,” said Phil Flynn, an analyst at PFGBest in Chicago. “Cold temperatures in Europe along with concerns about Iran and other trouble spots are helping keep Brent strong.”
Crude oil for March delivery fell 55 cents, or 0.6 percent, to $97.29 a barrel at 10:57 a.m. on the New York Mercantile Exchange. Prices are down 1.6 percent this year.
Brent oil for March settlement gained 60 cents, or 0.5 percent, to $115.18 a barrel on the ICE Futures Europe exchange.
The Brent contract traded at as much as a $17.99 premium to West Texas Intermediate oil, the grade traded in New York, the widest spread since Nov. 9. Brent’s premium narrowed to $6.82 in intraday trading on Jan. 3 from a record of $27.88 on Oct. 14.
Greek Prime Minister Lucas Papademos struck a tentative deal with party leaders to extend spending cuts after euro-area finance chiefs told them an increase in the 130 billion-euro ($170 billion) aid package wasn’t forthcoming.
The economic expansion in China, the world’s biggest energy-consuming country, could be cut almost in half this year if Europe’s debt crisis worsens, the International Monetary Fund said. Growth (CNGDPYOY) may drop by as much as 4 percentage points from the fund’s current projection, which is for 8.2 percent this year, according to report released today by the IMF’s China office in Beijing.
“With stagnant growth in Europe likely to be a permanent feature, prices seem a touch overbought and may either consolidate or retrace,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts Brent may slide to $112.50 a barrel. “Looking out much further, a recovering U.S. economy, prospects for a soft landing in China and continuing Syrian insurrection will mean higher prices.”
Oil in New York climbed for the first time in six days on Feb. 3 after the U.S. jobless rate fell to the lowest level in three years. The Labor Department said the unemployment rate dropped to 8.3 percent in January, the least since February 2009. Nonfarm payrolls increased 243,000, the most since April.
“The Greek crisis is making people mildly bearish,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The U.S. economy is showing signs of strength. We will be on the outlook for signs of a rebound in demand, but there haven’t been any yet.”
U.S. fuel demand dropped 8.3 percent to 17.7 million barrels a day in the week ended Jan. 27, the lowest rate since 1999, an Energy Department report on Feb. 1 showed.
Hedge funds cut bullish bets on oil in New York by 1.4 percent in the week through Jan. 31, according to data from the Commodity Futures Trading Commission. Money managers increased net long positions on Brent crude by 171 contracts to 86,423 lots in the same period, data from ICE Futures Europe in London showed.